Clinton Announces Credit Plan for Poor : Finance: President proposes distributing $382 million to lending units in urban and rural areas. Industry opposes creating new class of banks.

President Clinton announced a scaled-back community-development bank initiative Thursday that would distribute $382 million over four years among lending institutions serving distressed urban and rural areas.

Clinton said the plan, a central feature of the Administration’s prescription for South-Central Los Angeles and other troubled regions, “will bring new life and new opportunity and new directions” to impoverished and credit-needy areas.

Federal grants from the program would range up to $5 million per lender, and would be matched at least one-to-one with money from other sources, with the aim of channeling a maximum amount of capital to borrowers. By matching such grants with private funds and state economic development money, the program could generate $2 billion for target areas in cities, the countryside and on Indian reservations, Administration officials asserted.

The proposal calls for a nine-member board to oversee the creation of new community development banks. Existing community development lenders would also be eligible for the grants.

The proposal represents a sharp scaling back of the plan the President advanced during the campaign, when he called for “creation of nationwide network” of 100 community development banks modeled on Chicago’s South Shore Bank. During the transition, draft plans called for $850 million in spending on the program.

But the notion of creating a class of new banks met steadfast opposition from the banking industry--including from some minority-owned lenders--who argued the Administration would be squandering limited funds if it undertook to build new institutions.

Bruce Reed, Clinton’s deputy domestic policy adviser, said the Administration still aims to create 100 community development banks, though it may take Clinton’s full term to do so.

The industry remains unhappy that only community development lenders are eligible for the federal grants. This prohibition applies also to community development banks whose parent holding companies aren’t engaged in community-development lending.

As a practical matter “that excludes almost all existing institutions,” said Edward Yingling, government relations chief for the American Bankers Assn. Nonetheless, Yingling said the industry generally views the proposal as a positive step.

A number of Los Angeles’ central-city lenders, including Broadway Federal Savings & Loan Assn., Family Savings Bank, and Founder’s National Bank, plan to apply for the grants, according to Rep. Maxine Waters (D-Los Angeles), an advocate of the community-development banking proposal.

“There just aren’t a lot of new ideas on the table for job creation,” said Waters. “This one holds out some real possibilities.”

The bank initiative was announced with a proposal to reform the Community Development Reinvestment Act, the 16-year-old law that requires banks and thrifts to try to meet the credit needs of the neighborhoods in which they are located.

Both bankers and leaders of community groups have complained over the years that the act required too much paperwork and has not delivered results. Administration officials said that by Jan. 1 of next year, after consultations with industry and borrowers, they will draft a plan that “replaces paperwork and uncertainty with greater performance,” a White House statement said.

Clinton unveiled his plan at a ceremony on the South Lawn of the White House that was attended by Cabinet members, lenders and lawmakers. The event opened with remarks from the owners of three small businesses who described how community development lenders gave them their start when conventional lenders declined their loan applications.

They included the president of an employee-owned clothing manufacturer in North Carolina, the owner of Harlem’s first Ben & Jerry’s ice cream franchise and a single mother who started a riding stable in Ohio.

Tim Bazemore, president of Workers Owned Sewing Co., in North Carolina, said officials of his company didn’t have to query all the banks in their area about credit “because we know the answer before we apply.”

The community development bank proposal encountered its share of criticism from Republicans. Rep. Tom Ridge (R-Pa.), author of a competing proposal, called the Administration’s plan “just another government handout.” Ridge’s alternative would give lenders a discount on their deposit insurance if they made loans in stricken communities.